Various ministries, from now onwards, can spend budget allocated for the next financial year even before the commencement of the new fiscal year, in a move aimed at expediting capital spending.

The Ministry of Finance, “in a day or two”, will formally extend spending authority to all the ministries, enabling them to tap funds allocated through the annual budget for the next fiscal year.

The announcement comes a day after Deputy Prime Minister and Finance Minister Krishna Bahadur Mahara presented a budget of Rs1,279 billion for the fiscal year 2017-18 in Parliament on Monday.

“The budget for the next fiscal year, in fact, has allowed ministries to spend funds allocated for programmes and projects incorporated in the Line Ministry Budget Information System without seeking anyone’s permission,” Mahara told a press meet on Tuesday. “But to ensure there is no confusion, we will be sending formal letters to all the ministries in a day or two paving the way for them to utilise funds immediately.”

This policy change was made after capital spending remained sluggish in the current fiscal year despite introduction of the budget one-and-a-half months prior to the commencement of the current fiscal year. The constitution has made it mandatory for the government to present annual budget on the 15th day of Nepali calendar month of Jestha. Based on this provision, the budget of this fiscal year was presented on May 28.

Despite introduction of the budget at an earlier date, ministries were given the authority to spend the money allocated through the budget only on the first day of this fiscal year in mid-July, or one-and-a-half months after the budget was presented in the House.

The government has deemed this to be one of the reasons for underutilisation of the capital budget in the current fiscal year, which is preventing the country from achieving higher economic growth.

The government had allocated a capital budget of Rs311.9 billion for the current fiscal year. But as of Monday, only Rs106.5 billion, or 34 percent of the total allocation, was spent. The government has said 84 percent of this budget would be spent by the end of this fiscal year in mid-July. But many doubt whether the government can meet this target as less than one-and-a-half months are remaining for the fiscal year to end.

Full utilisation of the capital budget is necessary for a country like Nepal as the money is spent on civil works, and purchase of land, building, furniture, plants and machinery. This kind of public expenditure generally helps the country to narrow the infrastructure gap and crowd in private investment.

“We hope the change that we have made would expedite spending,” Finance Secretary Shanta Raj Subedi said.

Although central government agencies have received permission to make use of funds allocated through the budget of the next fiscal year immediately, local bodies will have to wait until the beginning of the new fiscal year to make use of funds earmarked through the budget.

“Funds for local bodies will be transferred to their bank accounts every four months in mid-July, mid-Nov and mid-March,” Subedi said.

The government in the next fiscal year is transferring Rs225 billion, or 17.6 percent of the total budget, to local bodies, as per the commitment expressed earlier to devolve the responsibility of budget formulation for local bodies from the central to the local level. The transfers are being made as the country formally embraced federal setup in March. This is huge shift as the central government has so far been playing a greater role in budget formulation of local bodies.

“We consider this as the first and most important step towards institutionalising federalism in the country,” said DPM and Finance Minister Mahara.